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Budget fails to keep
July, 13th 2009

Last Mondays Union Budget presentation and the Economic Survey 2008-09 that preceded it have taken Indian logistics players, especially in the port and shipping sector, on a roller-coaster ride.

When the survey was tabled on July 2, it underlined, for the first time in its history, the need for integrating all segments of Indian transport industry, including highways, railways, ports and airports, by having a single regulatory body to ensure better cohesion, everyone felt elevated. For the first time that was a very bold admission on the part of the government about the felt need of the industry, said a head of Mumbai-based shipping company, which has diversified into other related activities across the logistics spectrum.

Elaborating on the regulatory body, the survey said that there should be at least one member from each of these sub-sectors and the authority could have specialized groups of professionals in each sector.

The members can be appointed by the ministry concerned, with the Planning Commission acting as the nodal body for the selection of the authority's chairman, it said. The survey also suggested that the chairman be assisted by a neutral economic unit, the staff of which will again be selected by the Planning Commission.

The plan was so endearing to industry players that they expected the Budget to announce measures that would reflect, at least to some extent, the same sentiments. However, the Budget was a dampener in more than one sense.
I am still searching in the budget presentation if there is anything mentioned in the remote corner for the sector. I could not locate anything, said the shipping executive. The finance minister has royally ignored the shipping industry, said another shipping executive.

Instead of agreeing to any of the industry requests, the Budget proposals have further worsened the existing situation for shipping, said an Indian National Shipowners Association member, on condition of anonymity. For example, he said, service tax net has been widened to include coastal shipping and inland waterways. MAT has been increased from 10% to 15%, which will also adversely impact us.

The Budget, however, has brought down service tax on ships given on charter from 10% to 2%, thereby saving the industry players and Income Tax authorities from a lot of botheration as the cases they are fighting now stand null and void.

There is nothing specific for the port sector in the Budget. The disappointment is genuine, said an official connected with the port sector. However, he added, one does not know how much the ports stand to benefit from the reduction in excise duty on imported machinery announced in the Budget.

The Budget is also silent on dredging and port capacity expansion projects. As most of the projects on this front are non-starters for quite sometime, everyone was expecting the Budget to give the much needed push.

Infrastructure has emerged as a key focus area of this year's Budget with increased allocations for highways, irrigation, rural development, and power.

The Budget proposes release of long-term funds by government-run Indian Infrastructure Finance Co (IIFCL) for projects and refinancing 60% of commercial bank loans for public-private partnership projects in critical sectors over 15-18 months. For this, IIFCL would evolve a financing mechanism for giving increased support to infrastructure projects.

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